Aug 28 FT Fed changes, China missile threat, Apple v Epic more at stake, Share splits
MARKETs @ 11:30am HK time
JAPAN opened slightly higher following the US despite the weak Tokyo CPI data out pre market saw initial choppy trading, twice testing yesterdays closing level before working higher in lunch. Currently +0.4%. May see weakness in the PM ahead of PM Abe’s news conference and Pre market data Monday (Retail Sales and Industrial Production)
Pre Market CPI data
Tokyo Core CPI Aug -0.3% YoY vs +0.4% Jul (F/cast was +0.3%)
Tokyo CPI Aug +0.3% YoY vs +0.6% Jul (F/cast was +0.6%)
S KOREA opened higher and have trended higher Kosdaq currently +1.6% and the Kospi +1.3%. Kospi did see some initial weakness but worked higher after the first hour.
Pre market Monday we get Industrial & Manufacturing Production and Construction output.
TAIWAN opened lower and traded lower but then bounced back but resistance at yesterdays closing level. Then eased back to the opening level; so effectively sideways. Currently -0.3%
CHINA opened lower and but trended higher though the morning Currently +1%
Pre Market Monday we get Manufacturing and Non Manufacturing PMI's
HONG KONG Pre market opened +50pts @ 25,330 vs -82pts ADR’s @25,199 some initial selling but support at yesterdays closing level and then the market worked higher to 25,560 level. Currently trading sideways +1%.
EUROPE I would expect the market to open slightly higher following Asia and in response to the Fed’s new policy. Data due today
EUROZONE Consumer Confidence, Sentiment (Economic, Industrial and Services) Consumer Inflation ExpectationsGERMANY GfK Consumer Confidence, Import PricesFRANCE GDP Growth Rate, Inflation Rate, Household Consumption, PPI
US Futures opened +30pt and have worked higher to +60pts, Jackson Hole symposium continues and data due today Personal Income and Spending, PCE Price Index, Goods Trade Balance, Wholesale Inventories, Core PCE Price Index, Chicago PMI, University of Michigan Final Data (Consumer Expectations, 5 year Inflation Expectations, Consumer Sentiment, Inflation Expectations, Current Conditions), Baker Hughes Total Oil Rig Count
Fed adjusts monetary policy with move to tolerate higher inflation. Powell signals shift at virtual symposium • Ultra-low level interest rates likely for years.
He noted that the changes were because the economy is always changing and the Fed must change too. Key is that it will now look at an average inflation rate and also changes in the way it views employment. The key thing for investors was that it signals that interest rates are going to remain low for longer.
See also Editorial The Fed’s welcome inflation evolution. Which notes the change was needed and also that it does not silence the rumours that Central banks are running out of policy options. Central banks do not want to repeat the Japanese experience; which showed that boosting inflation via low rates and money printing is undermined without fiscal expansion and public confidence in the economic climate. It concludes that 'Mr Powell’s shift is no cure-all. Ultimately, to create the conditions under which economies can thrive, technocrats need the help of the lawmakers they serve. Yet his more pragmatic, relaxed stance on inflation will help provide firmer foundations for a recovery.;
Hong Kong activist Wong predicts imminent arrest. Pro-democracy campaigner Joshua Wong expresses fear of being sent to Chinese prison but refuses to give up fight and flee territory. He thinks that its just a matter of time and that he could be transferred to the mainland for a secret trial. But for the time being he is staying in Hong Kong. I suspect his prominence and hi popularity amongst his peers that the administration will be cautious for fear of inciting a further backlash against the Carrie Lam administration.
Mr Wong was disqualified from standing in the now delayed local elections but he commented that they might never take place. He also warned that the extraterritorial laws China had granted itself raised the likelihood of citizens being kidnapped overseas and brought back to China for trail. He cited the case of the Hong Kong bookseller abducted in Thailand. He was also critical of Switzerland following reports that they wanted to renew a discreet agreement with China signed in 2015 that provides for officials from Beijing to enter the country without official status and question Chinese citizens staying illegally there.
The article also mentions about a group of 12 Hong Kong people caught trying to illegally reach Taiwan in a speedboat. They included a number of activists including Andy Li who was currently on bail. Taiwan warned that people trying to land illegally would face investigation and their action could jeopardise their stay in Taiwan. Interestingly the group were caught on Sunday but the news was only released Wednesday. For Mr Li it means that he will be tried in China for the illegally entering China, false documentation etc etc.
For international investors it has little direct influence on stocks although it does raise the concerns about the judicial autonomy of Hong Kong. Hong Kong has thrived because of its legal system with precedent being preferred to China’s and for the ability to convert US dollars. Both of those now are increasingly coming under threat and international investors will be adding those changes to their risk premium weighting for investing in Hong Kong.
China’s launch of missiles ratchets up tension with US. The firing of anti ship missiles is seen as a threat to the US navy in the South China Sea. It follows a US spy plane over flying an area the Chinese military had declared a no-fly zone as it conducted its military exercises. The article doesn’t stipulate if it entered Chinese air space, which I doubt but rather the area China designated was actually international air space but China was trying to imply that it was 'its air space’ just as it claims the South China Sea. If the U2 plane had been in Chinese air space I think we would have seen Chinese fighters launched to intercept. China’s ratcheting up of military action I think is very much playing to the domestic audience and reflects the fact that with the sanctions on Huawei, the trade talks and potential delisting of Chinese companies from the US Beijing is trying to show that it is not impotent in its response to the US.
For investors there are two key points. Firstly as President Tsai of Taiwan pointed out there is increased risk of an ‘accident’. My feeling is that if there is an accident it is likely to be contained but it would probably hit the markets badly.
Secondly that Beijing is realising that the US’s control on chips has the ability to seriously undermine its ambitions. That to me is more worrying because I think it increases the chances of China taking action to reclaim Taiwan sooner in the hopes of gaining access to the chip technology it so badly needs.
Apple cannot afford to lose its battle royale with Epic Games. Looks at what is at stake for the apple. It is not just about the tax but also the control over the distribution of apps and the management of the user experience. Additionally there is the competition element for those competing against Apple’s own services. All in addition to the fact that the costs incurred by Apple in running its App Store are negligible and so the 30% could be considered price gouging. The flip side is that the App Store tax is how Apple has decided to monetise its years of investment in software and hardware to make it the company it is today.
It goes onto to look at what Epic’s real purpose is, because a fee cut alone would not change the way Apple operates. It contends that Epic want Apple to give up control of the App Store sop that other companies can run their own 'self-determining digital economies on top of the mobile platform.’ Epic looks to have the aim to make money from helping other companies build and distribute their own games. When those games are successful they are more than just games but communities.
'Who will set the rules for what happens inside these digital worlds and how the spoils are shared out? Apple’s success owes much to its tight control of the mobile platform it invented. It will not give up without a fight.’
Not mentioned but also of interest will be the fact that even if Apple wins its case it may still find itself facing legal challenges but this time from legislators. Whichever way it goes Apple is going to be under threat but that doesn’t seem to be reflected in the share price at the moment.
Apple and Tesla throw spotlight on share splits. Move’s return to fashion risks adding to frothy market if other participants follow suit. Share splits don’t change the fundamentals of a company. But they do make share more affordable for smaller investors. At the end of trading today Tesla and Apple share splits are effective; next week we will see what happens. It if goes well it is possible that more companies follow and that could add to the ‘frothiness’ of the markets. Worth read.